For Retaining Clients, a Client Retainer

Inevitably, clients in a down market get testy about fees. It's bad for commission-based brokers, but also bad for RIAs and other advisors who charge management fees based on the values of portfolios. Clients who are losing money may object to paying for the privilege. With many brokers at full-service firms gradually moving to asset-based fees, some RIAs, in an effort to meet client needs and compete

Inevitably, clients in a down market get testy about fees. It's bad for commission-based brokers, but also bad for RIAs and other advisors who charge management fees based on the values of portfolios. Clients who are losing money may object to paying for the privilege.

With many brokers at full-service firms gradually moving to asset-based fees, some RIAs, in an effort to meet client needs and compete with larger firms, have been experimenting with flat annual retainers. While tying one's services to an asset-based fee aligns a broker with a client's goals, a flat retainer places the value specifically on the advice rather than on investment performance, which isn't likely to beat the market, says Matt McGuiness, a Cerulli analyst.

Ron Yolles of Yolles-Samrah Investment Management in Southfield, Mich., says he started getting requests for flat retainers in the last couple of years. And some RIAs are experimenting with deals on management fees for bigger clients — say, those with $5 million or more. They're offering, for example, a $30,000 retainer rather than a 1 percent management fee, depending on portfolio complexities. Stewart Welch III of the Welch Group in Birmingham, Ala., says his group is considering situations where such a fee would be reviewed and altered after a two-year period.